Keywords:

Porter’s Value Chain, Logistics Business, Sols 2040, Inbound and Outbound Logistics, Business Strategy, Logistics Management

Introduction

Oman’s economy depended massively on the oil sector that contributed 85% to its revenue prior to the oil crisis in 2016 (Al-Wahaibi, 2018). Since the oil crisis, and then the country’s economy has faced a huge drop, making the sultanate’s government decide to sit a program to enhance economic diversification and return the economy to its previous state. This program is monitored by the Implementation Support and Follow-up Unit (ISFU), and it includes developing three main sectors: logistics, manufacturing, and tourism (ISFU, 2020). What is more, Oman’s government has started developing the logistics sector by establishing the ASYAD group that manages and controls many logistics companies and organizations in Oman. ASYAD, with the help of the Ministry of Transport, Communication, Information and Technology (MTIC) and the Implementation Support and Follow-up Unit, set the Sultanate of Oman Logistics Strategy (SOLS) 2040 that matches Oman’s vision 2040 to develop the logistics sector to make it one of the top logistics hubs and improve logistics performance index (LPI) as well (Al-Wahaibi, 2018).

Since the development program was introduced, the Ministry of Transport, Communication, Information and Technology (MTIC) and ASYAD in cooperation with different logistics companies in Oman, improved different areas in Oman’s logistics sector such as ports, airports, roads, logistics services, customs, and information flow. The logistics sector increased its contribution to the gross domestic product (GDP) from USD 2,686,100 in 2015 to USD 2,836,600 in 2019 (Transport, 2020). However, in the same year, the world bank has shared the logistics performance index where Oman has ranked at 43^rd; which is higher than its rank in the previous years at 48 (2016); 59 (2014); 62 (2012) (World bank, 2018).

The Sultanate of Oman Logistics Strategy (SOLS) 2040 aims to improve the logistics sector in Oman and make a global logistics hub. The strategy also ambit to be in the top ten in the logistics performance index (LPI), increasing the employment in the logistics sector to 300,000 by 2040 and increasing this sector's contribution to Oman's GDP by 14%. The strategy aims to integrate different areas in the logistics systems in Oman, which are seaports, airports, public transportation, shipping, and road infrastructure. Also, the strategy has mainly focused on employment and strengthening the competitiveness of the country in the global market. After long studies, the MTIC has come up with four ambitions that are focusing more on achieving the goals which are related to market, trade facilitation, technology, and human capital.

However, there is a huge gap between Oman’s target in the LPI and its current position which increased the need to study the logistics market in Oman and to find the main logistics activities in Oman that add a value to the economy, which was covered in this research. Thus, this study intends to analyse Oman’s logistics sector’s development in line with the SOLS 2040 by using Porter’s value chain analysis theory, and to identify the main logistics activities that help to develop the Oman’s logistics sector.

Review of Related Literature 

There have been numerous studies that cover the logistics sector in Oman, however, most of this research are too old and fail to cover the sector's development since 2015. Al-Wahabi (2018) mentioned in his report about the attractive location of Oman and the location’s impact on its economy where it is in the Arabian Gulf, in the east-west trade route. MTIC mentioned in the SOLS 2040 handbook (2015) that Oman's location enables it to be at the crossroad of the Indian ocean connecting trade routes between Asia, Europe, Indian continent, and Africa, which is an excellent chance to Oman to access to the international shipping market. This advantage supports the logistics sector and gives it a unique opportunity to participate in Oman's economic diversification and contributed to its GDP with 3.75% in 2018.

Overview of Logistics in Oman

After the massive fall in the oil prices globally, Oman's government, in the 8th five-year development plan (2011-2015), has set a plan to develop the infrastructure to support the non-oil exports such as chemicals, health care, mining, food, and alternative energy. While addressing the logistics sector, many areas need to be mentioned to provide a clear picture of the current situation of the logistics sector in Oman, which are the transportation, warehouses and storage facilities, customs, free zones, and other logistics areas.

Furthermore, the transportation in Oman is one of the main factors that has a huge impact on the logistics’ sector development. Many research and reports have covered the development of three types of transportation (sea, land, and air) that are used in Oman as described in Table 1.

Table 1 Modes Of Transport Used In Oman
Sea Transportation	Land Transportation	Air Transportation
Al-Wahabi (2018) and Baxter(2018) mentioned in their research that the sea transportation is the most critical area in the country’s logistics where 80% of the imports are coming from the seaports. The World Bank (2014) has stated in their report that Oman ports handles about handled 4.9million TEUs of sea cargo and26.6 million of general cargo in2019 which is 10.7% higher than he cargo that was handled in2018, which were which means that they play a huge role in the movement of the cargo regionally and globally. Moreover, the management of Salalah port has mentioned in their annual report (2019) that the port is a leading transshipment port and one of the biggest multipurpose seaports within the middle east and “the region’s leading container shipment port.” By 2020 the porthas increased its revenue to reach OMR 64.724 million. In contrast, Sohar Port is an international hub where it can handle 2,032,464TEUs of containers and 74,719RORO vehicles, and 14,603,418tons of bulk in 2020 (Sohar Port,2020). What is more Duqm port is the largest special economic zone development globally, where it supports the Oman dry dock company to repair and build vessels. Moreover, sea transportation supports the tourism sector where Sultan Qaboos port in Muscat and Khasab port in Musandam are the tourism gateways to Oman where both ports have different facilities that serve the cruise ships and the passengers. Two other local ports are managed by the Marafi company. These ports are Suwaiq port and Shinas’s port, where both are used for local delivery between ports by using small wooden dhows and flat bottom vessels (Baxter,2018).	MITC also mentioned in their annual report (2019) that Oman has ranked 2nd position in road infrastructure quality and 8th position globally. According to the annual report published by the Ministry of transportation, communication, and technology in 2019, the government was able to build roads around Oman with a length of about 32,924 Km. The report also entioned that the ministry was able to build a 15789 Km Road that serves society and businesses and linking different locations around Oman. One of the projects that finished in 2019 is the Al Batinah expressway with 270 Km length that links between AlBatinah governorate and Muscat. This project has positively reduced traffic congestion between AlBatinah and Muscat Wilayas (transport, 2020). Oman roads connect the Wilayas and link Oman with its neighboring countries, Saudi Arabia, UAE, and Yemen, and helped to improve inland deliveries through the countries’ borders. Al-Wahabi, M (2018) has mentioned that 66 million tons of minerals are exported from Oman to UAE and KSA through the road borders.	Oman airports management company OAMC (2018) mentioned in their report that their primary mission is to “manage and develop the gateways to and beyond Oman” to be one of the top 20 airports in the world by 2020. The company has worked in the previous year in developing Salalah and Muscat airports to be international airports. Al-Wahabi, M (2018) mentioned that Muscat airport has grown by 145% since 2010. In 2019 the airport was developed with $1.8 billion in area 580,000 m2. This has enabled the airport to handle 48 million TEU of cargo nd 20 million passengers annually (Baxter, 2018). In 2019, the airport has received 16 million passengers and 240,284 tons of cargo within 117,966 flight movements (WorldBank, 2014). Simultaneously, Salalah airport has developed 65% since 2010, according to OAMC's reports. The airport can handle 1 million TEU of cargo and 2 million passengers annually. In 2019, the airport received 1,358,845 million passengers and 1,394 tons of cargo in 12,056 flight movements (World Bank, 2014). OAMC also had built domestic airports to serve the people to move between different areas in a short time. Sohar and Duqm airports are the main local airports that were built recently (Ithraa, 2018). Both ports started their first local flight in 2017. These ports are built to support the Sohar and Duqm industrial areas' intramodality with a handling capacity of 2,500 TEUs per year. In 2019 these domestic airports received 386,105 passengers within 3,076 flight movements (WorldBank, 2014).

According to the Directorate General of Customs Book about bonded warehouses, Oman's government has applied the bonded warehouses in different regions in Oman. The warehouses aim to store the imported cargo until the customs clear them, and the owner pays the customs duties and other expenses (Omancustoms, 2019). Many activities are happening in the warehouse, such as store pack package duty-free shop operations attaching ballots and restoring the goods. These bonded warehouses, except all the imported cargo from Gulf Cooperation Council (GCC) countries, are liable to customs duties. Also, these warehouses receive cargo from an unknown destination (MTIC, 2015). Many warehouses and storage facilities are mostly located inside the ports to support the port users or in the free zones to store the inventory before delivering it to the next destination.

Moreover, Customs authority in Oman is working to ensure that all the cargo exported and imported is inspected in the shorter time possible. To achieve that, they have introduced the bayan system. According to the customs authority (2018), it is an “integrated electronic custom system” that allows the traders to have access to all the customs procedures and processes and finish all their transactions online without visiting the customs office to do the paperwork. Once the customs authority started using the Bayan system, they could reduce customs clearance time from 49 hours to six hours for sea freight and four hours for air freight (Baawain & Daud, 2016). By applying the bayan system, the customs authority became able to increase the number of imported, exported, and re-exported cargo. Figure 1 shows the volume of imported, exported, and trans-shipped cargo inspected in Oman ports in the last three years.

Ithraa (2015) mentioned that there are many free zones in Oman located in Sohar, Duqm, Salalah ports, & Mazyounah. The first three zones are located close to the seaports in the same area, while Mazyounah free zone is located close to Yemen borders. These three zones have a large land with industries in different specialties, for example, plastic, iron, and food processing. Oman's government has paid great attention to these free zones by supplying them with necessary infrastructures such as roads, telecommunication, electricity, Internet, and other necessary utilities and services, so it can help to develop the logistics sector in Oman. Supporting these areas from the government would help to encourage the investors to start their businesses there and to attract foreign investments. Linking the hinterland free zones with the seaports and airports will significantly impact many businesses in Oman and the logistics sector, where there will be a smooth movement of raw material to the free zones and then from the free zones to the hinterland or seaports located in the same area.

While mentioning the connectivity and logistics sector, Oman's government plans to provide a logistics area that supports the free zones and ports, which is Khazaen. Khazaen economic city (KEC) is an integrated economic city located in Barka. According to an Oman news agency report, the economic city includes extensive facilities that will integrate the logistics sector to higher levels. There are several activities are expected in the KEC such as an inland port, intermodal rain terminal, warehouses and distribution facilities, light industry, cold storage facilities, open storage yards, and truck parking. This economic city will help increase the investments in many areas, not only the logistic sector but also its reflection on improving its GDP.

Theoretical Framework

The research will be constructed based on the Michael Porter's value chain analysis theory. It was introduced by Michael Porter in 1985 in his book “Competitive Advantage”. The main goal of Michael Porter's value chain is to analyze “the internal activities” of any business or company to identify the activities that add value to the business and “understand the cost” that follow each activity. This will help to increase the profit and efficiency of the businesses (Eby, 2017). Michael Porter had classified the organization's activities into two groups: primary activities and support activities (Sutarmin & Jatmiko, 2016). The primary activities are activities that directly impact creating the product or service, while support activities are the activities that support the primary activities, which are explained in Table 2.

Table 2 Porter Value Chain Activities
Primary Activities		Support Activities
Inbound logistics	It is about the activities involved with receiving raw materials to be used in manufacturing processes. To identify the activities that create value, the company will calculate the real-time inbound inventory and raw materials delivery. The company also measures the performance of storage of the raw material and other inbound inventory.	Firm infrastructure	It is related to the company as a whole and the activities related to the organization structure and the departments in the company. To identify the activities that create value, the company will evaluate the performance of the management, finance, legal, and planning department in the organization
Operations	It refers to all activities involved in converting the raw materials or semifinished goods to a ready-finished product. To identify the activities that create value, the company will define the standardized models they follow to do the company's operations. They will also calculate the real estimated time to reach the inventory or apply the services.	Human Resource Management	It involves all the activities related to the employees. To identify the activities that create value, the management will evaluate what the company provides for its employees, like professional department training programs, competitive wages, and recruiting
Outbound logistics	It refers to all the activities involved in storing and delivering the finished goods to the final customers. To identify the activities that create value, the company will evaluate the order processing procedures, costs, and time. They will also measure how many times they have relived a full truck delivery	Technology development	It is related to all the technologies and researches used to improve the quality of the activities in the company. To identify the activities that create value, the company will evaluate its technologies to integrate its supply chain. It is also calculating the real-time sales that will significantly impact the value created in the company
Marketing and sales	It refers to implementing strategies to market for the company, the services, and products that it provides to reach the target customers. To identify the activities that create value, the company measures the pricing of products and services that they provide where they look for low prices of products. They will also measure their communication and promotion performance, which are the main factors that affect the company's revenue and its relationship with other partners and customers in the supply chain	Procurement	It involves all the activities related to ordering and purchasing the company’s needs. To identify the activities that create value, the company will be elaborating its relationship with the suppliers, purchasing products and services from the suppliers, and measuring the real-time inventory
Service	It is related to the services provided to the customers before and after the sale. To identify the activities that create value, the company evaluates the services that they provide besides the products they provide, like delivery, repair, customer service, service follow-up, refund, and product return.

Both primary and support activities are complementary to each other. For example, a company cannot receive an inbound order without placing an order by the procurement department. Kumar& Rajeev (2016) had elaborated in their research that the value chain depends on the pricing strategy and cost structure. The value chain will help companies to understand their capabilities to improve their competitive strategy. It will help the company to rethink about pricing their products or services in a way that keep its competitive advantage high and cover all the production costs and expenses. According to Michael Porter (1985), there are three steps that companies should follow to conduct a porter value chain analysis. First, the company must analyze the main activities involved in producing a product or providing a service. The company must then assess each product's value and check whether it provides a cost advantage or differentiation to the company. Lastly, the company must determine strategies that can be used to double the competitive advantage and support the weak areas in their supply chain.

Methodology

This research is built up on a descriptive research design where quantitative methods were used to describe the current situation of the logistics activities in Oman by referring to the Michael porter value chain framework as an analytical tool. It also describes the performance of the logistics companies in Oman and their readiness to achieve the SOLS 2040.

The survey questions aimed to identify the main logistics activities that create value for companies and Oman’s economy. While creating the survey questions, Michael porter's value chain activities are used to clearly define the main logistics activities, the value that they create, and the performance of the companies in each activity. The logistics services providers in Oman were considered as the target population. This step was achieved by contacting the Chamber of Commerce, Oman to obtain a list of the logistics services providers around Oman. There are 1382 logistics providers in Oman and out of that, 1050 logistics services providers are located at the main cities Muscat, Suhar & Salalah due to the logistics business diversifications, e.g.: airports, seaports, and free zones.

The second step was to map the location of the logistics service providers to know where they are heavily located, which are listed in Table 3. There are 100 logistics services providers have been conducted via both email and telephone, however only 76 were responded to the survey questions. Out of 76, 16 respondents’ companies were providing several incomplete information and they were filtered out for this study to avoid any bias in the analysis process. Finally, only 60 respondents’ feedback were used as final data. This helped to identify the sampling technique that was employed to conduct the research, which is purposive sampling.

Next to define the synchronization between the logistics companies and the governmental authorities to develop the logistics sector in Oman and to track the readiness of the logistics sector to achieve the SOLS 2040 plan from the industry perspective, the research has used the secondary data. The secondary data is extremely useful to be used in a descriptive research where the data is collected and analyzed from reliable sources. The study aimed to analyze the correlation between the SOLS 2040 ambitions and the current situation of the logistics sector.

Table 3 Distribution Of Logistics Service Providers Around Oman
	Warehousing	Custom Clearance	Sea Transportation	Air Transport	Vessels Hiring	Loading/ Unloading	Total
Muscat	40	258	271	20	8	128	725
Suhar	11	141	35	0	0	19	206
Salalah	4	75	31	3	2	14	129
Ibri	1	10	26	0	0	7	44
Al Rustaq	2	15	54	0	0	9	80
Al Buraimi	1	27	5	0	0	1	34
Sur	2	6	17	0	1	10	36
Nizwa	1	9	23	0	0	2	35
Kasab	1	12	7	0	2	8	30
Haima	3	2	6	0	1	3	15
Ibra	0	5	46	0	0	7	58

Findings

The analysis is based on 60 responses of logistics services providers in Sohar, Muscat and Salalah. The respondents were asked to select the top three main logistics activities in Oman. The seaports activity has the highest rate where 50.8% of the respondents (49 votes) has selected it. While airports activity has the second-highest rate with 31.1% (29 votes). 4.9% of the respondents have voted for road and land transport (35 votes) as the main logistics activity in Oman, while 8.2% of the participant voted for warehouses and storage facilities (27 votes). Finally, Customs activity 26 votes with 3.3% of the total participation, and other activities are presented in Figure 2.

Table 4 shows that the correlation between the main activities and the activities that add value to the economy is 0.575. This number means that there is a strong positive correlation between being the main logistic activity and creating more value.

Table 4 Correlation Between The Main Logistics Activities And The Logistics Activities That Creates A Value To The Business
Main logistics activities			Logistics activities that create more value
Main logistics activities	Pearson Correlation	1	0.575
	Sig. (2-tailed)		<0.001
	N	60	60
Logistics activities that create more value	Pearson Correlation	0.575	1
	Sig. (2-tailed)	<0.001
	N	60	60

Next, the following analysis will identify which activities most companies used and measure their performance in each activity. The Porter value chain activities are divided into two main activities, which are Primary and Support activities, as discussed in Section 2. The respondents were asked to select the main primary and support activities to which their businesses focus on. For primary activity, Inbound and outbound activities are the most voted activities with 33.94% and 32.12% consecutively, while the service activity was the lowest one (10.09%) compared than others (Figure 3).

Figure 4 shows the support activities that the respondents focus on more in their businesses where the votes of all the activities are very close; however, the procurement has the highest votes (27.17%), while the human resource activity has obtained the lowest vote (21.74%) compared than other activities. Overall, it summarizes that all the 60 logistics services providers are applied all the support activities in their business since there is not much different in the percentages of each support activity.

Support Activities - Porter Value Chain

Detailed survey was conducted to obtain more information about the performance of the logistics services providers for each activity which will be discussed below.

Firm Infrastructure

The respondents were asked to choose the most effective functions that add value to their company's productivity. Table 5 shows the results where 62.2% of the respondents selected Planning and Quality Management (19 respondents for each function).

Table 5 The Most Effective Functions That Add Value To Their Company's Productivity
	General Management	Planning	Finance	Accounting	Quality Management
Number of respondents	15	19	4	3	19

Human Resource Management Performance

The respondents were asked about their opinion about some statements related to the human resource management in their company. Table 6 shows the statements and their responses. It summarizes that in total more than 60% respondents are strongly agree and agree with the human resource performance at their workplaces.

Table 6 The Performance Of The Human Resource Management In Their Company
Statement	Strongly agree	Agree	Disagree	Strongly disagree
The human resource department in the company improves the work environment	38.3%	40 %	16.6 %	5%
The human resource department in the company improves the employees’ skills	28.3%	36.6 %	18.3 %	16.6 %
The human resource management of the company involves the employees in dictions made in the company and provide them with any updates in the company’s policies, rules, and regulations	23.3%	53.3 %	16.6 %	6.66

Technology Development

Technology development is about studying the services provided by their business to look for any improvements. To measure the application and development of the technology in logistics companies, the respondents were asked about how regularly their company upgrades its services.

There is 46.7% of the respondents said that their company is always upgrading the technology services that they provide and 45% of the respondents that their company is sometimes upgrading the technology services. While the remaining 8.32% said that their company is rarely upgrading.

On top of that, 31.7% of respondents mentioned that their companies have used a latest and updated software and technologies to upgrade the work, for instance System Applications and Product System (SAP), Sertica, Warehouse Management Software (WMS), Enterprise Resource Planning (ERP), and the Bayan system. However, 68.3% of respondents said that there are using the old version of technology (back to 10 to 15 years) in their daily logistics business operation. Table 7 describes the software used by the logistics companies in Oman.

Table 7 Software Used By The Logistics Services Providers In Oman
Enterprise Resources Planning (ERP): It is used in transportation and logistics companies to manage the distribution processes and staff (1ci, 2020).	Halliburton Management System (HMS): It is used in Get the App